Nepal’s hydropower potential is often touted as one of the highest per-capita power production in the world, boasting a theoretical potential of approximately 83,000 megawatts, of which around 43,000 are considered technically and economically feasible. Yet, with a total installed generation capacity of 4,200 megawatts and domestic demand hovering around 2,000 to 2,200 megawatts, the nation continues to struggle to exploit its potential.

In the last fiscal year, Nepal earned a record-high Rs29.32 billion from exporting electricity to India and Bangladesh. However, the current production and export model is fundamentally unsustainable as it remains heavily reliant on selling volatile monsoon surplus while importing power during the dry season. To secure long-term economic resilience, Nepal must capitalise on the Indian energy market while it lasts, forge proactive trilateral agreements to export power to Bangladesh, and accelerate domestic consumption.

The window of opportunity in India will not remain open indefinitely. Although India’s electricity demand is projected to reach 458.7 gigawatts by 2036, the country is rapidly diversifying its own energy sources. Its solar capacity is projected to reach 211 gigawatts, with the nation targeting 100 gigawatts of nuclear power by 2047. Under these circumstances, India will increasingly assess Nepal’s electricity based on strict parameters of price, reliability and availability. Kathmandu must acknowledge this reality.

To secure the Indian market, the state must immediately resume the stalled power purchase agreement (PPA) process, where projects representing roughly 16,500 megawatts currently languish. It is vital to negotiate long-term agreements of 5, 15 and 25 years. Furthermore, Nepal needs to invest heavily in transmission infrastructure as inadequate infrastructure currently wastes around 1,000 megawatts of generated electricity. Prioritising cross-border transmission networks, however, is not enough. Since most of Nepal’s hydropower plants are run-of-river, fast-tracking reservoir-based projects like Upper Arun, Dudhkoshi and Budhigandaki are essential steps to provide consistent, year-round electricity.

Relying on a single export market, however, exposes Nepal to geopolitical vulnerabilities. Past bilateral tensions have led to economic blockades, notably in 1969, 1988-89, and 2015-16. Power-hungry Bangladesh, currently crippled by severe gas and electricity shortages, represents an ideal partner. Bangladesh’s master plan seeks to import up to 9,000 megawatts of electricity from its neighbours. Crucially, Nepali hydropower is highly competitive. The initial bilateral agreement to export 40 megawatts to Bangladesh was priced at Tk8.35 per unit, which is 78 percent cheaper than Bangladesh’s costly imports from India. Kathmandu must proactively seek trilateral agreements with New Delhi and Dhaka to establish stable cross-border corridors.

Yet, the ultimate goal of energy sovereignty lies within Nepal. It is strategically unwise to remain heavily dependent on imported fossil fuels while wasting clean energy. Replacing imported Liquefied Petroleum Gas (LPG)—which costs Nepal Rs60 billion annually and is prone to chronic shortages and hoarding—with subsidised domestic induction cooktops will insulate Nepali kitchens from international supply shocks. This transition will also significantly reduce the national import bill. Here, the government could incentivise electric power consumption for cooking by providing subsidies for induction cooktops.

To absorb surplus power locally, state authorities must implement future-oriented domestic reforms. For starters, the Tarai belt could be electrified by replacing diesel water pumps with electric irrigation. A nationwide network of hybrid refrigeration units could be built to preserve agricultural harvests. Furthermore, building pumped-storage hydropower and grid-scale battery systems will stabilise local distribution networks. Looking further ahead, surplus energy can power clean digital assets, support green data centres, and produce green hydrogen to manufacture domestic chemical fertilisers.

Nepal cannot afford to fall behind in the transition to energy sovereignty. If the nation wishes to capitalise on its power potential, it must engage in bold regional diplomacy, immediate infrastructure upgrades, and a domestic electrification campaign.